2014 property predictions: ‘We’ve turned a corner’

IN property circles 2013 will be remembered as the year when the construction industry finally emerged from a deep recession and some confidence returned to the sector.

Office take-up, in Manchester at least, returned to pre-crash levels – 667,000 sq ft in the first nine months, and the investment market came back with a number of office blocks changing hands, as well as interest in high profile assets such as the Royal Exchange.

In Manchester cranes returned to the skyline, a visible reminder that a number of large multi-million pound schemes were grinding into action. However, flagship schemes such as the National Graphene Institute and the Home development at First Street are being publicly funded. Elsewhere residential schemes have been supported by the government’s Get Britain Building fund and a helpful nudge from the Homes and Communities Agency.

Public money has certainly helped confidence to return but this year a number of large privately funded schemes are expected to start, such as Fred Done’s No 2 St Peter’s Square – which he may even start speculatively – and Ask Developments’ Greengate scheme in Salford. These projects are clearly fuelling confidence amongst the region’s property professionals who give their views below.

Ken Bishop, senior director at DTZ’s Office agency team.

“The office market is looking far more positive than was the case 12 months ago. An improvement in the national economy has created greater confidence amongst businesses and an increase in activity after the summer holidays has been particularly in evidence. Total take-up in Manchester city centre for 2013 will be the highest for three years and it is even possible that it will achieve the long-term average of 950,000 sq ft, even without the long running saga that is the Project Tomorrow, a requirement where terms have been agreed for at least two years on approximately 200,000 sq ft for a number of buildings across the city.

“The year has seen a number of large requirements for existing buildings which has been the case for many years. Barclays Bank is committed to 80,000 sq ft at 4 Piccadilly Gardens; Trader Media Group have agreed to take 40,000 sq ft at No. 1 First Street and at the beginning of the year Travel Jigsaw signed a lease on 62,280 sq ft at Sunlight House. In addition, Australian lawyers, Slater & Gordon, are currently seeking 100,000 sq ft in the city centre.”

James Evans, office agency director at Savills in Manchester.

“As a result of continued strong demand we expect to see grade A office take-up in Manchester during Q1 14 reach the highest levels seen for over five years, with significant activity being felt at existing grade A buildings including Piccadilly Place and 3 Hardman Square. This will place further pressure on availability and we consequently anticipate that the supply pipeline will finally feel the tightening that many have predicted over the last 18 months.

“The continued activity in the occupier market will help to fuel sustained investor interest not just from London based institutions but also global buyers from North America and the Far East. Incumbent landlords will hope this interest from overseas investors will be matched by demand from overseas occupiers.”

David Porter, head of Knight Frank’s Manchester office.

“This year has seen a significant increase in the weighting of money being invested in property across London and the South East, which has driven up prices and led investors to consider other centres. Manchester is seen as the next port of call and is currently attracting interest from investors from the across the world.

“This could lead to a commitment towards a speculative office development in the city centre next year. With high levels of demand for Grade A accommodation and little supply, Manchester presents a strong case for speculative development particularly in the central business district. We believe that it’s only a matter of time before someone will announce they have secured speculative funding to commence a building without a pre let.”

Rupert Barron, director of the national offices team at Colliers International in Manchester.

“There are signs things have certainly picked up and since the summer we’ve seen cranes returning to the skyline of Manchester. There’s also a willingness to get things done, and occupiers are doing deals which is very positive and bodes well for the forthcoming year. But there’s still an air of caution, people are only doing things when they’ve got the cash to back it up. They are doing it prudently.

“Judging by the level of stock being transacted people are putting things into the market and they’re attracting interest. We have turned a corner and we’re going in the right direction.”

Julien Kenny-Levick, director, of industrial and logistics at Colliers.

“In 2014 there will be further compression on yields for the the best multi-let and distribution centre sites in prime locations throughout the North West of England. We’ll witness rental growth for the first time in some years but only in the so-called prime regions of the UK such as the South East of England and with modest economic growth and improving business confidence now spreading throughout the regions, leasing activity will finally gain some traction.

“However, innate and persistent caution emanating from the downturn of the past five years means the pre-letting of developments will continue to be more preferable to speculative schemes.”

Abid Jaffry, head of the Manchester office of Lambert Smith Hampton.
 
“With an increase in interest from foreign investors in the Manchester market, it looks likely that 2014 will see the city continue to grow and prosper on the international stage. Investment activity has generally been rising across the North West for most of 2013, and this growth trajectory only looks set to exceed expectations.
 
“Despite subdued optimism around the market, investor interest in the retail sector remained strong and accounted for 36% of the total market in 2013, so this could certainly be one area to watch for potential upturn. In terms of the office sector, there are a number of opportunities being discussed off market which look set to materialise and will have a positive impact on overall volumes.
 
“The mood compared to the end of 2012 has changed dramatically for the better, so one can only hope that activity over the next 12 months continues to add to that sense of positivity. Manchester is in a strong position to take advantage of the coming growth, so we need to ensure that we are ready to maximise on the opportunity.”
 
Michele Steel, director at Deloitte Real Estate in Manchester.
 
“2013 will be remembered as the year when optimism in the property market returned. Development projects on site in Manchester City Centre were three times what they were in 2012, with the city leading the way in comparison to its other regional counterparts.
 
“The residential sector has shown the most signs of improvement and that is going to be an ongoing theme into 2014 and beyond, particularly in the private rented sector but we expect to see more activity across the board. The office market also looks to be on the cusp of a new growth cycle – the limitations in available office space could finally force an upturn in speculative construction.
 
“The number of investors willing to fund developments has been critically low for several years now, but 2014 could be the year when we see the optimism that has featured so prominently in the last quarter of 2013 really take hold. More investors are gradually beginning to seek opportunities outside of London, and the North West is in a strong position to capitalise on that.”

David Lathwood, director and head of Jones Lang LaSalle in the North West.

“The region’s property market has really started to swing back into action this year. Office take-up increased by 30% on 2012, making it Manchester’s strongest since 2006-2007. In addition, prime regional yields are now back to their 10-year average of just under 6%. We’re expecting this momentum to continue into the New Year. The combination of improved confidence and a shortage of Grade A stock will fuel the need for occupiers to act on their office space requirements. Major UK banks are also now returning to Manchester to fund big ticket deals, and in time we’d expect an increase in pre-letting activity as a result.

“In the longer term investment in the city centre will be increasingly predicated on activity in the residential sector. Sales picked up considerably in 2013 – aided in part by the early introduction of the Help To Buy scheme – and the rental market also performed strongly. There’s significant institutional money seeking exposure to city-centre residential stock, which is likely to be used as a source of forward-funding for development. As such, the residential market has the potential to become a significant driver for wider investment.”

Steve Burne, managing director of Manchester’s AEW Architects and member of the property and construction board at the Greater Manchester Chamber of Commerce.

“The next year is one of huge opportunity and challenge for the property and construction sector in the North West. Everybody is talking about being busier, and there is a lot more work around, but meeting the demand could cause its own problems.

“The industry lost a lot of skills during the recession, with younger people leaving for other industries when they couldn’t find a job, and many of the older more experienced people having retired. This leaves a serious skills gap, not just on building sites where there are not enough apprentices coming through to meet the anticipated workload of the next three to four years, but in the offices of consultants, architects and engineers. The Chamber has identified £16bn of planned construction projects in Manchester to 2017 and estimates the city is 10,000 workers short of being able to properly resource those schemes.

There are some things being done, by individual businesses and trade organisations. At Greater Manchester Chamber of Commerce we are working with training organisations and businesses to get apprentices into industry. Similarly at AEW we’re bringing in new talent and have taken on five trainees in the last year. Our model is to train people internally, mixing with senior staff who act as mentors, combining experience with enthusiasm which also benefits the clients. We’re certainly anticipating a very busy year with commercial, industrial, retail and hotels which have all come back strongly. There has been an upturn in the number of enquiries and projects which have been mooted for a while, which are finally coming to fruition with a realistic chance of happening. All this serves to increase people’s positivity and the next 12-18 months look to be very busy.”